What are investment expenses, and are they tax deductible?

From commissions and spreads to transaction fees and subscriptions, it’s hard to avoid paying extra when you swap or send crypto. Although these investment fees are small, over time they can pile up and affect your overall tax picture. Plus, you’ll need to document your fees carefully for accurate crypto tax reporting and how they may reduce your tax liabilities.

So before you file your tax return, learn what investment expenses are and how you should report them to the IRS.

What are investment fees?

Investment fees are any costs required to transfer, manage, or secure that asset. Some of these fees are part of the buying and selling process, while others result from exchanging currencies, transferring digital assets between accounts, or paying a custodian to hold crypto.

Here are a few examples of common investment fees.

Transaction fees

Most crypto exchanges charge fees or commissions for buying and selling digital assets. Centralized exchanges (CEXs) typically impose a flat fee or percentage on each transaction, and they may also charge deposit or withdrawal fees for fiat and crypto. In contrast, decentralized exchanges (DEXs) often charge a percentage fee per swap, as well as gas fees that fluctuate depending on the underlying blockchain and network congestion.

Account fees

Sometimes called platform charges, account fees are costs that go toward maintaining user accounts and providing services like security and insurance. This type of fee is often a percentage of the total assets held in your account. But some platforms offer flat rate options or different fee schedules depending on the service you use.

Foreign exchange fees

If you invest on international platforms, you may have to pay foreign exchange fees when converting between fiat currencies. Also, some exchanges only allow certain international-friendly transaction methods like wire transfers, which might charge processing fees.

Are investment expenses tax deductible?

The Tax Cuts and Jobs Act (TCJA) of 2017 suspended all miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) floor under IRC §67. This included investment-related expenses such as management fees, financial advisory fees, and certain custodial fees. The suspension was originally set to expire after 2025, but the One Big Beautiful Bill Act (OBBB) made this suspension permanent, including the elimination of investment advisory fee deductions.

Prior to TCJA, investment fees were tax deductible as an itemized deduction if they exceeded 2% of your Adjusted Gross Income (AGI). For example, if your AGI was $150,000, only expenses above $3,000 were deductible. This deduction is no longer available.

With the OBBB, this deduction no longer applies, but some expenses still count as deductions. For example, the investment interest expense deduction under IRS Form 4952 allows taxpayers to deduct interest paid on borrowed funds used to purchase taxable investments (e.g., margin interest on a brokerage account). This deduction caps at the total amount of net investment income for your tax year.

Are crypto trading fees tax deductible?

Crypto transaction fees generally aren't deductible as a separate line item. However, you can add them to an asset’s cost basis during acquisition and subtract them from proceeds during a sale. For example, if you buy $1,000 worth of Bitcoin (BTC) and pay a $10 transaction fee, your cost basis becomes $1,010. The higher cost basis reduces your taxable gain when you later dispose of the asset.

Note that paying gas fees or other transaction fees in cryptocurrency is itself a disposition of a digital asset, which may trigger a separate gain or loss. For example, if you pay a gas fee in ETH, you are disposing of that ETH, and the difference between your basis in that ETH and its FMV at the time of the fee payment may result in a taxable event.

Since these fees affect your capital gains and losses, you should keep detailed records of all transactions and associated fees. CoinTracker makes this task simple by linking with exchange APIs and crypto wallets to automatically record trading fees for every transfer.

How to save money on investment taxes: 6 tips

While most investment fees aren't directly deductible, there are still ways to reduce your tax burden from crypto trading. Here are six ways to decrease your tax liabilities.

1. Understand each type of expense

Not all investment expenses are created equal – the rules can be different for trading fees, wallet maintenance costs, advisory fees, and commissions. Plus, the laws surrounding these costs change with new policies. So the first step to lowering your taxes is to review the latest laws on different investment expense types and learn how to report them to the IRS.

2. Realize capital losses

When you sell a digital asset for less than your cost basis, the difference is a capital loss. Capital losses first offset capital gains, and any excess can offset up to $3,000 of ordinary income per year with remaining losses carried forward to future tax years. Some investors strategically sell their losing positions each year to take advantage of this strategy, a practice called tax-loss harvesting.

3. Contribute to 401(k) and traditional IRA accounts

Certain retirement plans, like 401(k)s and traditional IRAs, offer tax deductions on contributions up to a set limit. Although cryptocurrencies aren’t offered on standard IRA plans, it’s possible to invest through self-directed IRAs.

4. Look for lower long-term capital gains rates

When you hold assets for over one year, you qualify for more favorable long-term capital gains rates. The rates are set at three levels – 0%, 15%, or 20% – depending on your taxable income and filing status.

5. Consider your income bracket before selling

Even if an asset doesn’t qualify for long-term capital gains, consider how estimated yearly income will influence your tax rate. You might choose to sell high-performing assets during lower-income years to qualify for reduced tax percentages, because your gains are added to a smaller base income.

6. Track all your investment expenses

Many kinds of transaction fees can influence a digital asset’s cost basis in your favor. To benefit from that effect, you should meticulously record and organize these costs using IRS-compliant documentation and a tool like CoinTracker’s Portfolio Tracker.

Simplify your crypto taxes with CoinTracker

While fees on their own aren’t usually deductible, they impact your crypto taxes in many ways, like changing your cost basis and affecting whether you realize capital gains or losses. So it’s essential to keep clear records of all your crypto investment expenses.

To take the stress out of calculating and categorizing those costs, CoinTracker automatically includes fees in every transaction record. Plus, with a CoinTracker account you can easily import all that data into IRS-compliant forms and provide tax authorities with a thorough account of your transaction history.

Tax time is approaching – are you prepared? Let us simplify your crypto tax journey. Create a free CoinTracker account and let our platform handle the complexities.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.